Paramount Chairman Martin Davis the Odd Man Out
By Martin Davis, Sam Allis and Sam Gwynne
For Martin Davis, the embattled chairman of Paramount Communications, these are soul-trying times. Just four months ago, Davis engineered a merger agreement with MTV-owner Viacom Inc. that would have made him chief executive of one of the world's media giants. But Hollywood wizard Barry Diller, who now chairs the QVC home-shopping network, crashed in with a hostile bid for Paramount that triggered the first major takeover battle of the 1990s. Paramount directors spurned Diller at first but endorsed his bid in December after Delaware court rulings compelled them to entertain all offers. The board last week reaffirmed support for Diller's bid, worth about $9.9 billion, vs. Viacom's offer, worth some $9.4 billion. That made him the heavy favorite to win the company unless Viacom chairman Sumner Redstone can top the rival bid.
No matter whether Diller or Redstone prevails, Davis, 66, will soon leave the company he has run successfully since 1983. There would be no place for Davis under Diller. And two weeks ago, Viacom announced an $8.4 billion merger with home-video retailer Blockbuster Entertainment. That deal enabled Viacom to sweeten the cash portion of its bid for Paramount but left little in the way of a role for Davis. With the bidding war now in its final phase -- a winner is expected to emerge in early February -- Davis met last week with TIME Boston bureau chief Sam Allis and business editor Sam Gwynne for the Paramount chairman's first major interview since fall.
Q. TIME: Why did you change your initial position and endorse the QVC bid this week?
A. Davis: I didn't change anything. The change came about because of the court ruling in Delaware. We started off with a merger in September of Paramount and Viacom, and that merger is not going to take place along the lines we envisioned. The court, with which we respectfully disagreed, mandated that we auction off the company, and that is exactly what we have been doing. The latest QVC bid is a superior offer.
Q. TIME: Considering that you set out to merge with Viacom on your own terms, why isn't this a failure for your strategy?
A. Davis: I don't think it's a failure in the long term. If you go back to what we started to do in 1983, we've been consistent in what we've done. We have built shareholder value. We built a superb company, as evidenced by the fact that we have an auction going on. Somebody wants it and is willing to pay a steep price.
Q. TIME: Do you see yourself being part of the management of the new company, whatever the acquiring entity is?
A. Davis: Let me tell you what I told Diller, with whom I have a merger agreement. I told him I will stay on as long as necessary to insure a smooth transition. I have spent most of my professional career here, so I'm not prepared to just leave tomorrow. I will stay on as long as I can. But that is not a permanent assignment.
Q. TIME: Let's say the acquiring company is a merged Viacom/Blockbuster. We noticed that when they announced their merger, they did not include you in their future management plans.
A. Davis: Which was correct. And they should not have. Because I can't make a commitment to anybody, other than to make sure we have a smooth transition. Otherwise I would be tilting, and I won't tilt.
Q. TIME: What might you have done differently? This has been a wild ride.
A. Davis: I wouldn't have done a thing differently. Seriously. What we did was the right thing in our view, and I would do it again today. I could not conceive of it coming out the way it did.
Q. TIME: Did you know when you began your talks with Sumner that an aggressive competitor like Diller could try an end run?
A. Davis: No. Theoretically you always go into play when you do a transaction. That's par for the course. But we did not see it coming, in spite of what everybody else thinks we saw. Nobody perceived, including our bankers -- but I'm not going to blame this on bankers -- that there was another valid bid out there that could match the power of the two companies coming together.
Q. TIME: Now that you are the auctioneer, does it make you sad that you won't be managing the assets you have built?
^ A. Davis: I would be misleading you tremendously if I said it doesn't bother me. I'm saddened by it, but I'm also happy with it. Because my first obligation and the obligation of the board has been to get value. We've achieved something, and of that I am very proud. When I do leave here, I'm going to leave behind assets that weren't here in 1983, including a balance sheet that was tottering on the brink of bankruptcy and is now very strong.
Q. TIME: Has this been a personality-driven contest?
A. A. Davis: Only in the media. I think the media have seized upon it, and "nemesis" has been given a new meaning. I think it's totally exaggerated. I think if you put Barry Diller and myself out in the ring in Madison Square Garden, you'd have 12 people show up, all from the New York press. Who cares? He and I have a cordial relationship, and we have had one for some time.
Q. TIME: What are the origins of your dispute with Diller in the early '80s at Paramount?
A. Davis: I had a style. I make no apologies for it, and I could be very tough about it, and I would insist on certain things because I wanted this company to survive. Now, some of us had differences of opinion, and I daresay Barry Diller was not the only one who left at that time. The only difference is that in the motion picture business in Hollywood, if somebody gets a scratch, right away it's cancer.
Q. TIME: Have you talked to Sumner Redstone since the board meeting Wednesday?
A. Davis: I talked to him. I talked to Barry, I called them both.
Q. TIME: Can you tell us about those calls?
A. Davis: I called Barry to congratulate him and told him we had reaffirmed our recommendation for QVC, and I called Sumner and told him the same thing.
Q. TIME: How did they react? Sumner could not have been very happy.
A. Davis: I don't think he was surprised, but again I can't speak for him. He acted professionally. He did not raise his voice, he did not get excited. I think he understood. At least I hope he did.
Q. TIME: How often do you talk to Barry?
A. Davis: Yesterday I talked to him three times. I haven't talked to him today. I will see him next week.
Q. TIME: What kinds of things are discussed? Are you talking about nuts and bolts, transition?
A. Davis: Absolutely. We're talking about this company and what has to be done here -- some of my views, which he needs to listen to in terms of what needs ( to be done. But those are confidences I'd rather keep to ourselves. We've discussed individuals as they pertain to the company. He's been very professional about it. I've seen him more lately since I have a merger agreement with him.
Q. TIME: Do you think Sumner understands why you've decided to endorse Barry Diller's bid?
A. Davis: I think he understands full well. Look, he's under the same court directive we're under. It's no different for him. He has to do what he has to do. Clearly Viacom never had in mind to keep upping its bid. But I haven't changed my mind about the first deal that was done. From a financial standpoint, from a long-term standpoint, it was the right deal. I'll say that to my dying day. Because you would have had a different company and a different balance sheet and with unusual strength to go forward.
Q. TIME: Do you think it's accurate when people say this deal is a throwback to 1980s swashbuckling?
A. Davis: No. That's pure nonsense. The 1980s was purely going on overextending debt and looking for never-never land. Balance sheets meant nothing in the 1980s. Today anybody who takes on a load of debt is going to work his tail off to bring it down. You can't just call up a Drexel or a Goldman or a Merrill Lynch and say, gee, I've got this wonderful idea, I need 7 billion bucks, do you think you can finance me?
Q. TIME: So this isn't a 1980s flashback?
A. Davis: No. If it was an '80s flashback, you wouldn't have a Comcast in the picture, you wouldn't have a Blockbuster in the picture, or a Nynex in the picture. These are all strategic investors, as opposed to financial players.
Q. TIME: What makes this deal so special? Is there anything unique about this that makes it different from other deals?
A. Davis: Basically it was a garden-variety transaction. That's what we started out with. It was an intelligent, common-sense merger. Nothing convoluted about it. Nothing sinister. Nothing clandestine.
Q. TIME: What happened to it? What caused it to mutate?
A. Davis: If it was a machine-tool company, you wouldn't be sitting here today.
Q. TIME: So we're talking about Hollywood and sex appeal?
A. Davis: We're talking about whatever the media created, and that's what also makes it silly.
Q. TIME: What's in the future for Martin Davis?
A. Davis: As soon as that court decision was affirmed, my plans, my life - changed. And it's all very positive. I'm leaving behind a great company. Looking to the future, I do have a lot of possibilities. I am clearly on the road to establishing something.
Q. TIME: Will it be running your own show?
A. Davis: Very definitely.